E-BANKING PRODUCTS AND SERVICES IN...

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CHAPTER-III

E-BANKING PRODUCTS AND SERVICES IN INDIA

3.1 INTRODUCTION

Banks and other financial entities in India entered the world of information

technology and computer networking only very recently. The introduction of

liberalization measures in the banking sector and the emergence of new private

sector and foreign banks equipped with latest technology, led to increased

competition in the banking sector. With the introduction of the new technology in

banking sector, customers are fast moving away from the traditional branch

banking system to the convenience and comfort of remote electronic banking

services or virtual banking. With E-banking, the brick and mortar structure of the

traditional banking gets converted into a click and portal model thereby giving real

shape and form to the concept of virtual banking. In virtual banking, brick and

mortar structure or physical bank branch is no more required for rendering

banking services.

E-banking is a generic term for delivery of banking services and products

through electronic channels such as telephone, internet, cell phone, etc. The concept

and scope of E-banking is still evolving. It facilitates an effective payment and

accounting system thereby enhancing the speed of delivery of banking services

considerably. While E-banking has improved efficiency and convenience, it has

also posed several challenges to the regulators and supervisors.

Several initiatives taken by the Government of India, as well as the Reserve

Bank of India (RBI), have facilitated the development of E-banking in India.

The government of India enacted the Information Technology (IT) A, 2000, which

provides legal recognition to electronic transactions and other means of electronic

commerce. The RBI has been preparing to upgrade itself as a regulator and

supervisor of the technologically dominated financial system. It issued guidelines

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on risks and control in computer and telecommunication system to all banks,

advising them to evaluate the risks inherent in the systems and put in place

adequate control mechanisms to address these risks. The existing regulatory

framework over banks has also been extended to E-banking. It covers various

issues that fall within the framework of technology, security standards, and legal

and regulatory issues1.

Improved customer service has become very important for public and

private sector banks to survive and to grow in the emerging deregulated financial

market. Consequently, banks are under increasing pressure to ‘offer today what

customers would expect tomorrow’. The banks now compete with one another to

offer value-added services to customers to expand their customer bases. In this

chapter, the various types of E-banking products and services offered by the

Indian banks have been enumerated with latest statistical data available.

Types of E-Banking Products and Services offered in India

The following are the important up-to-date e-banking products and services

offered by the Indian banks.

1. ATM

2. Credit Card

3. Internet Banking

4. Mobile banking

5. Phone Banking

6. Tele Banking

7. Utility Bill Payment and other regular periodical payment facilities

1 R.K. Uppal & Rimpi Jatana,” E-banking in India - Challenges and Opportunities, Eastern

Book Corporation (Online Book Seller), 2007.


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8. Electronic Fund Transfer ( NEFT / RTGS/ MICR )

9. Electronic Clearing Services

10. E-Commerce Transactions

11. MICR/OCR Clearing System

12. Pre-Paid Instruments

13. Truncation of Cheques System

The above products and services are discussed in detail in the following

paragraphs.

3.2. AUTOMATED TELLER MACHINES (ATM)

These are the cash dispensing machines which are frequently seen at banks

and other locations such as shopping centres and building societies. Their main

purpose is to allow customer to draw cash at any time and to provide banking

services where it would not have been viable to open another branch, e.g. on a

college campus.

By the end of 1990, private and public sector banks in India came up with

their own ATM networks under the initiative of the Indian Banks Association in

Mumbai. The Bank of India was the first nationalised bank to render ATM

facilities to its customers in Mumbai.

ATM has become the most popular and convenient delivery channel used

by people in rural and in urban areas. ATM is the most accepted and popular user-

friendly technology for even the rural customers. An Automated Teller Machine is

one, which a customer can use with a card having PIN to withdraw cash and for

other services. ATM is a modern device introduced by the banks to have access to

money day in day out without visiting the bank branches in person.

ATMs have already become popular in India and they enable the customers

to withdraw their money 24 hours a day, 7 days a week and round the year.


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The system is known as ‘Any Time Money’ or ‘Anywhere Money’, because it

allows the customers to withdraw money from the bank from any of its ATMs

round the clock even on Sundays and National holidays. Through this facility,

customers of the bank are not restricted to remain a customer of the branch where

the account is maintained.

The services of ATMs are made available by the banks both at the bank

premises (On-site ATMs) and also at convenient locations (Off-site ATMs) viz. at

public places like petrol bunks, markets, railway stations, bus stands air ports, etc.

Depending upon the volume of business, banks install required number of ATMs

for their customers at convenient places in the same town.

Another significant milestone in this mode of delivery channel was the

introduction of the Shared Payment Network System (SPNS) of ATMs by the

Indian Banks Association, Mumbai. Under this system the banks having no ATM

facility in a locality provide ATM services to their customers in that locality

through a tie up with other banks with ATM to share their ATM. The ATM

sharing in India across banks started with SWADHAN.


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Services Offered Through ATM

Following are the important services offered by the Indian banks through

their ATM:

a) Cash and Cheque deposit

b) Transfer of funds between accounts

c) Printing of mini-statement

d) Paying of insurance premium

e) Balance enquiry

f) Product information

g) Change of Personal Identification Number (PIN)

h) Ordering of Cheque book

i) Receipt of cash

j) Recharge of prepaid mobile card

k) Option for mobile banking etc.

Progress of ATM

Table 2.1 discloses the number of ATMs installed by scheduled commercial

banks by the end of March 2010. During 2009-10, the total number of ATMs

installed by the banks increased to 60,153. The spread of ATMs has increased

from 34,789 in March 2008 to 60,153 in March, 2010. The ATM installed by

foreign banks and new private sector banks were four and three times of their

respective branches.


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Table 3.1

Branches and ATMs of Scheduled Commercial Banks

(As at end-March 2010)

Bank Group Branches Total

ATMs On-site

ATMs Off-site Total

Off-site ATMs % to Total ATMs

ATMs as % to Total

Branches

Nationalised Banks 41596 12655 7047 19702 35.8 47.4

SBI Group 17229 11142 9836 20978 46.9 121.8

Old Private Sector Banks 4952 2266 1124 3390 33.2 68.5

New Private Sector Banks 5075 6337 8720 15057 57.9 296.7

Foreign Banks 308 279 747 1,026 72.8 333

Total 69160 32679 27474 60153 45.7 86.97

Source: Trend and progress of RBI Annual Report - 2009-10

The ATM to branch ratio was much lower for public sector (47.4 per cent)

and old sector banks (68.5 per cent). At individual bank level, the number of

ATMs exceeded branches in respect of all new private sector banks, except

centurion bank of Punjab Ltd., which was later merged with HDFC Bank Ltd.

In the case of old private sector banks, the ATM to branch ratio was less than

100 per cent for nationalised banks and old private sector banks. As most foreign

banks are operated with limited branches in urban and metropolitan areas, the

number of ATMs operated by them, in general, far exceeded the number of

branches. Of all the ATMs installed in the country at the end March 2010, SBI

Group had the largest share in off-site ATMs while Nationalised banks had the

largest share in on-site ATMs.


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3.3 NATIONAL ELECTRONIC FUND TRANSFER (NEFT)

It is a national wide funds transfer system to facilitate transfer of funds from

any branch to any other bank branch. The operationalisation of the NEFT in

November 2005 was a major step in the direction of setting up and operating a

National Level Payment System. There is no restriction of centre or of any

geographical area inside the country. The system uses the concept of centralised

accounting system and the bank’s account that is sending or receiving the funds

transfer instructions gets operated at one centre viz. Mumbai only. The individual

branches participating in NEFT could be located anywhere across the country.

NEFT facility is available with all Core Banking Branches (CBS). The beneficiary

gets the credit on the same day or the next day depending on the time of settlement.

Available across a longer time window, the NEFT system provides for batch

settlements at hourly intervals, thus enabling near real-time transfer of funds.

Certain other unique features viz. accepting cash for originating transactions,

initiating transfer requests without any minimum or maximum amount limitations,

facilitating one-way transfers to Nepal, receiving confirmation of the date / time of

credit to the account of the beneficiaries, etc., are available in the system.

Operation of NEFT System

Step-I: The remitter fills in the NEFT application form giving the particulars of

the beneficiary (Bank-branch, beneficiary’s name, account type and account number)

and authorizes the branch to remit the specified amount to the beneficiary by

raising a debit to the remitter’s account. This can also be done by using net

banking services.

Step-II: The remitting branch prepares a Structured Financial Messaging System

(SFMS) and sends it to its service branch for NEFT.

Step-III: The service branch forwards the same to the local RBI (National

Clearing Cell, Mumbai) to be included for the next available settlement. NEFT is


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settled in six batches at 09.30, 10.30, 12.00, 13.00, and 16.00 hours on weekdays

and 09.30, 10.30, and 12.00 hours on Saturdays.

Step-IV: The RBI at the clearing centre sorts the transactions bank-wise and prepares

accounting entries of net or credit for passing on to the banks participating in the

system. Thereafter, bank-wise remittance messages are transmitted to banks.

Step-V: The receiving banks process the remittance messages received from RBI

and effect the credit to the beneficiaries’ accounts.

There is no value limit for individual transactions. The scheme had

originally no restrictions in the transfer of amounts. However, banks impose

certain restrictions in the number of transfer and amount transferred per day for

reasons of security. It is necessary to have a bank account to originate the NEFT

transaction and the beneficiary too should have an account at the destination bank-

branch. There is no acknowledging of money credited to the beneficiary account.

But electronic acknowledgement is generated for the customer that his money is

received by the beneficiary at the sender branch. Foreign remittances cannot be

effected through NEFT. The remitting customer gets back the money if it is not

credited to the beneficiary account.

RBI publishes the list of bank branches participating in the NEFT on its

website with. Indian Financial System Code (IFSC). It is an alpha numeric code

designed to uniquely identify the bank-branches in India. This is 11 digit code

with first four characters representing the bank code, the next character reserved as

control character (presently 0 appears in the fifth position) and remaining six

characters to identify the branch.

The essential information that the remitting customer has to furnish is

beneficiary details such as beneficiary name and account number, name and IFSC

of the beneficiary bank branch. The service charges for outward remittance is

Rs. 1.50 per Rs. 1,000 or a part thereof subject to a minimum charge of Rs.25 and


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a maximum of Rs. 1,500. The service charges for outward remittance is

Rs. 1.50 per Rs. 1,000 or a part there of subject to a minimum charge of Rs.25 and

a maximum of Rs. 1,500. For inward remittance Rs. 50 is charged irrespective of

the amount.

Table 3.2 Growth of National Electronic Fund Transfer (NEFT)

(Number in Lakh and Amount in Crores) Year Volume Percentage Amount Percentage

2003-04 8.19 100 17,124 100

2004-05 25.49 311 54,601 319

2005-06 30.67 374 61,288 358

2006-07 47.76 583 77,446 452

2007-08 133.15 1625 1,40,326 820

2008-09 321.61 3926 2,51,956 1471

2009-10 663.38 8095 4,09,507 2391

Source: Trend and progress of RBI Annual Report 2009-10

Table 2.2 depicts the growth of transferring funds by using EFT/NEFT

technology. There is a tremendous growth in transfer of funds both in terms of

value and volume. The percentage of growth rate in volume of transactions in the

financial year 2003-04 was 100. The growth rate in volume of transactions had

increased gradually up to the financial year 2006-07 (583%) and it had extraordinary

growth rate in the financial years 2007-08 (1625%), 2008-09 (3926%) and 2009-10

(8095%). In the case of value of money transferred, it was 17,124 crore (100 %) in

the financial year 2003-04 and it had raised to 4,09,507 crore (2391 %) in the

financial year 2009-10. With the advent of EFT/NEFT technology, people are

changing from traditional methods of fund transfer to modern technologies.


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3.4 REAL TIME GROSS SETTLEMENT (RTGS)

RBI introduced Real Time Gross Settlement (RTGS) system with a view to

enhance the efficiency of the Cheque clearing system. The Real Time Gross

Settlement was implemented by the RBI after a comprehensive audit and review

of the software and also by conducting extensive training of users at commercial

banks on March 26, 2004. The Real Time Gross Settlement system is being

designed to provide large volume funds transfer and settlement in an on-line real

time environment to the banking industry, with settlement on a gross basis.

RTGS system is a funds transfer mechanism where transfer of money takes

place from one bank to another on a ‘Real time’ and on ‘Gross’ basis. This is the

fastest possible money transfer system through the banking channel. Settlement in

‘Real Time’ means payment transaction is not subjected to any waiting period.

The transactions are settled as soon as they are processed. ‘Gross settlement’

means the transaction is settled on one to one basis without bunching with any

other transactions. Considering that money transfer takes place in the books of the

Reserve Bank of India, the payment is taken as final and irrevocable. The RTGS

service window for customer’s transaction is available from 9.00 hours to 16.00

hours on week days and from 9.00 hours to 12.00 noon on Saturdays i.e., to accept

the customer transactions for settlement at the RBI.

The RTGS system is primarily for large value transactions. The minimum

amount to be remitted through RTGS is Rs.1,00,000. There is no upper ceiling for

RTGS transactions. No minimum or maximum stipulation has been fixed for EFT

and NEFT transactions. The time taken for effecting funds transfer from one

account to another account under normal circumstances is that the beneficiary

branches are expected to receive the funds in real time as soon as funds are

transferred by the remitting bank. The beneficiary bank has to credit the

beneficiary’s account within two hours of receiving the funds transfer message.


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The remitting bank receives a message from the RBI that money has been credited

to the receiving bank. Based on this, the remitting bank can advise the remitting

customer that money has been delivered to the receiving bank.

It is expected that the receiving bank will credit the account of the

beneficiary instantly. If the money cannot be credited for any reason, the receiving

bank would have to return the money to the remitting bank within two hours. Once

the money is received back by the remitting bank, the original debit entry in the

customer’s account is reversed. The payments are settled through a transaction by

transaction. The settlement of funds is final and irrevocable.

The remitting customer has to furnish the following information to the bank

for effecting a RTGS remittance:

1. Amount to be remitted 2. His account number which is to be debited 3. Name of the beneficiary bank 4. Name of the beneficiary customer 5. Account number of the beneficiary customer 6. Sender to receiver information, if any 7. The IFSC code of the receiving branch


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The beneficiary customer can obtain the IFSC code from his branch.

The IFSC code is also available in the Cheque leaf. This code number and bank

branch details can be communicated by the beneficiary to the remitting customer.

With a view to rationalize the service charges levied by banks for offering

various electronic products, a broad framework has been mandated as under:

a) Inward transactions – Free, no charge to be levied

b) Outward transactions –

Rs. 2 lakh to Rs. 5 lakh - not exceeding Rs. 25 per transaction

Above Rs. 5 lakh – not exceeding Rs. 50 per transaction

RTGS system which was initially started (March 26, 2004) with four banks,

besides the RBI, as participants, at present has 109 direct participants ( the RBI, 94

scheduled banks and 14 primary dealers) of which 84 banks are offering RTGS

based customer services from more than 11,280 branches in 508 towns/ cities

across the country. Performance of the RTGS based settlement system for the last

six financial years are given in Table 2.3.


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Table 3.3

Growth in RTGS Based Settlement (2003-09)

(Number in Lakh and Amount in Crore)


Table 2.3 reveals that RTGS scheme, introduced in the year March 2004,

has shown a spectacular growth both in terms of volume and in value. The volume

of transactions (Number in Lakh) and value of transfer cleared (Amount in crore)

are given separately with cumulative percentage of growth. As the RTGS system

was introduced on March 26, 2004 that year was not taken into consideration for

analysis. The financial year 2004-05 was taken as the base year for the purpose of

analysis. During the year 2004-05, the total number of transactions was 4.60 Lakh,

(100%), and it increased to 332.53 (7217%) lakh transactions in the last financial

year 2009-10. Every year the growth rate, both in volume of transactions and

value of money transferred, was twice of the previous year’s figures. The total

volume of amount transferred through the RTGS system was Rs. 40, 66,184 crore,

(100%), in the year 2004-05 and it had raised to Rs. 10,11,69,930 crore (2488 %)

in the year 2009-10. The table further reveals that RTGS scheme contributes about

50 per cent of the overall payment values in the year 2009-10.

Year/

Period

Total Customer Remittance

Number % Amount % Number % Amount %

2003-04 0.001 - 1,965 - 0.00 - 0.00 -

2004-05 4.60 100 40,66,184 100 0.68 100 2,49,662 100

2005-06 17.67 383 1,15,40,836 283 7.13 1048 25,70,212 1029

2006-07 38.80 842 2,46,19,179 605 24.82 3649 71,67,807 2871

2007-08 58.54 1271 4,82,94,558 1187 41.46 6097 1,61,00,172 6448

2008-09 133.84 2907 6,11,39,912 1503 112.34 16520 2,00,04,107 8012

2009-10 332.53 7217 10,11,69,930 2488 304.40 44765 2,95,16,777 11823


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As far as the customer remittance is concerned, the total number of

transactions during the year 2004-05 was 0.68 lakh (100%) and it had raised to

304.40 lakh (44765 %) in the financial year 2009-10. The value of amount

transferred among the customers through RTGS system was 2, 49,662 crore

(100%) during the base year and it had increased to 2, 95, 16,777 crore, (11823 %)

during the year 2009-10.

It can be concluded from the above analysis that the customers and banks

are considerably using the RTGS system for transferring the funds. The customers

are switching over from the traditional methods of payments, like Cheque, demand

draft, mail transfer, etc., to electronic methods of payment system, like EFT,

NEFT, RTGS, etc.

With the implementation of RTGS, the paper-based inter-bank clearing had

been discontinued in a phased manner beginning with the closure of inter-bank

clearing at Mumbai in November 2004. The inter-bank paper-based clearing was

terminated in eleven centres from June 2005. High value clearing available to both

wholesale and retail customers, based on Deferred Net Settlement (DNS) system

would be phased out slowly and should be transferred to RTGS. All RTGS

member banks have now been settling their inter-bank transactions only through

RTGS. Non-RTGS member banks have been asked to make use of the electronic

platform as customers of some RTGS participants.

3.5. ELECTRONIC CLEARING SERVICE (ECS)

Indian banks are competing with one another to offer new products and

services to their customers. Banking services and products in India witnessed

transformation on a large scale in the last few years. Technology has played a

significant role in facilitating the transformation in the banking sector. Electronic

clearing service is one of the new electronic banking services.


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Electronic clearing service is a mode of electronic funds transfer from one

bank account to another bank account using the services of a clearing house. This is

normally for bulk transfers from one account to many accounts or vice versa. This can

be used both for making payments like distribution of dividend, interest, salary,

pension etc. by institutions or for collection of amounts for purposes such as

payments to utility companies like telephone, electricity or charges such as house

tax, water tax etc. or for loan instalments of financial institutions/banks or regular

investments of persons.

Electronic Clearing Service (ECS) is a non-paper based movement of funds

which is encouraged by the Reserve Bank of India on a wide scale. Indian banking

sector has made a quantum leap forward in terms of switching over from paper-

based transactions like use of currency notes, cheques, drafts or challans to

electronic means like Real Time Gross Settlement (RTGS), National Electronic

Fund Transfer (NEFT) and other electronic modes.

There are two types of (ECS) called

Electronic Credit Clearing Service (ECS) (Credit)

Electronic Debit Clearing Service (ECS) (Debit)

1. Electronic Credit Clearing Service (ECS) (Credit)

RBI introduced the Electronic Clearing Services in April, 1995. At the time

of introduction, the facility was available only at National clearing Centre Mumbai

and Kolkata. However, at present this facility is available across the country at 58

centres. All banks and branches in these locations are mandatory participants.

Organizations, which desire to make bulk payments frequently to a large number

of beneficiaries, can avail the ECS facility by registering for it with their bank.

Electronic Credit Clearing Service is a reliable device used for bulk and

repetitive credit-push payments such as salary, pension, dividend, commission,

IPO refunds, interest etc. ECS facility is largely utilized by the public and private


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limited companies and Government departments which make bulk and recurring

payments. Electronic Credit Clearing Service brings down administration cost and

ensures more profitability and productivity to the bank. It is an electronic bulk

transfer, using the values in T+3- process cycle.

2. Electronic Debit Clearing Service (ECS) (Debit)

Electronic Debit Clearing facility was initially introduced by the RBI in

Chennai in August, 1994 and at Mumbai in March, 1996 and later was extended to

New Delhi and Kolkata. At present, this facility is available at 43 centres across

the country and all banks and branches in these locations are mandatory

participants. Electronic debit clearing service was introduced by RBI to facilitate

the payment of credit-pull transactions such as payment of utility bills, insurance

premium and repayment of loans instalments.

In this scheme, the branch has to prepare a floppy file through a table top

MICR reader of all such transfer advices and this floppy is received by the service

branch which would consolidate it for onward submission to the clearing house.

The RBI would debit the individual bank and credit the sponsor bank of the utility

company. The system facilitates electronic transfer of bulk amounts using T+3-

process cycle. Dates are to be fixed in advance for bulk debits. Only after the cycle

is complete, final of the settlement would be known.

With effect from June 14, 2005, processing charges for all electronic

transactions under EFT, NEFT and ECS facility amounting to Rs. 2 crore and

above were waived up to the period ended March 31, 2007. It has been decided to

extend the waiver of charges for processing electronic payment products

(ECS/NECS/NEFT/RTGS) for a further period of one year, i.e., up to 31st March,

2010. As of March 31, 2009 as many as 114 banks with 26,275 branches participate

in NECS local ECS (credit) at Mumbai was merged with NECS-credit effective

from March 24, 2009.


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Table 3.4

Progress in ECS (Credit) and ECS (Debit) Transactions

(Number in Lakh and Amount in Crore)

Electronic Clearing services (ECS)

ECS (credit) ECS (Debit)

Year Volume % Amount % Volume % Amount %

2003-04 203 100 10,228 100 79 100 2,253 100

2004-05 400 197 20,179 197 153 194 2,921 130

2005-06 442 218 32,324 316 359 454 12,986 576

2006-07 690 340 83,273 814 752 952 25,440 1130

2007-08 783 386 7,82,222 7647 1271 1609 48,937 2172

2008-09 883 435 97,486 948 1600 2025 66,975 2972

2009-10 981 483 1,17,612 1150 1492 1888 69,523 3085


From Table 2.4, it is clear that there is a considerable progress in ECS

(Credit) and ECS (Debit) both in value of transactions and number of transactions.

In the financial year 2003-04, the number of credit transactions was 203 Lakh

(100%) and increased to 981 lakh transactions (483 %) in the year 2009-10. It is

interesting to note that in the financial year 2007-08, the value of transactions

registered were Rs. 7,82,222 crore (7647%). In the case of ECS (Dr), 79 Lakh

transactions (100%) were cleared in the financial year 2003-04 and increased to

1492 lakh transactions (1888 %) in the financial year 2009-10. The value of

transactions cleared were increased from Rs. 2253 crore (100%) in the financial

year 2003-04 to Rs. 69, 523 crore (3085 %) in the financial year 2009-10. So, it

can be concluded that there is a considerable progress in ECS (credit) and ECS

(Debit) both in value of transactions and number of transactions.


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3.6 CARD BASED PAYMENT SYSTEMS

There are three types of card based payment system. They are 1.Credit card

2.Debit card and 3. Smart card. Here, they are explained in detail with latest data.

Credit Cards

Credit card is the modern system of payment which has to a large extent

replaced the traditional forms of payment by cash, cheque etc. VISA and MASTER

CARD, MAESTRO, CIRRUS DINEKS are associations of banks, which dealt in

credit cards. Bank credit cards are a type of consumers’ loan, revolving in nature

i.e. automatically renewing itself with in specific limits. The holder has the option

to utilize it in part or full depending upon his needs. The credit so availed has to be

paid with in a period and with repayment, the limit gets renewed automatically.

It is a cute card made of plastic. It has a method of identification of users by

means of either signature identification or a stamp size photo of the card holders.

It authorises the holder to charge goods and services to his account for

which he is billed. Credit card is otherwise called 'Plastic money'. The most

important difference between a credit card and a debit card is that while credit card

is a 'post paid' one the latter is a 'pre paid'.

Application of credit cards

The application process is a continuous cycle involving the following steps:

The card holder makes purchase from the authorized merchants producing

his credit card and obtains the goods and services.

The merchants submit a claim to the bank. The bank makes payment to the

merchants for the value of goods and services.

The bank sends notice to the customer to make payment for the goods and

services purchased.

The card holder makes payment to the bank.


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Credit cards began to be used in USA as early as 1920's and their use began

to increase after 1950. Diners Club introduced their credit card in 1950 and the

American company in 1958 and Bank of America in1959.

In India, the Central Bank of India was the first bank to introduce the credit card

known as 'Central Card' in the middle of 1981. Credit card facility became immensely

popular among customers in India by 1990. With the introduction of credit card system,

the concept of every-where and any-where banking became a reality.

Table 3.5

Growth and Progress of Credit Cards in Indian Banks

(No. of cards in Lakhs & Rs. in crores)

Year No. of Cards % Volume % Value %

2003-04 - - 1001 100 17662 100

2004-05 - - 1294 129 25686 145

2005-06 173.27 100 1560 156 33886 191

2006-07 231.23 133 1695 169 41361 234

2007-08 275.47 159 2282 228 57984 328

2008-09 246 142 2595 259 65355 370

2009-10 183 105 2342 234 61824 350


From Table 2.5, it is seen that the percentage of volume of transactions

increased to 234 % during the year 2009-10 over the base year 2003-04 (100%).

The table also shows that there is a growth in the volume of transactions year by

year. In case of value of transactions, it raised to 350% in the FY 2009-10 when

compared to the base year 2003-04. With regard to number of cards used, it raised

to 142% in the FY 2008-09 from 100% in the FY 2005-06. The above Table also


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shows that there has been a steep decline in the number of credit cards issued

during the year 2009-10 as compared to the previous years 2006-07, 2007-08 and

2008-09.

Hence, it can be concluded that there is an overall growth in volume of

transactions and the value of transaction and negative growth in number of cards

issued.

2. Debit Cards

Debit card is a pre paid card with some stored value, which optimizes

conveniences for the customers. A customer possessing a debit card need not carry

cash. It is like carrying cash from the bank account, without the inconvenience or

risk of carrying liquid cash. In other words, debit card allows 'any where any time

access' to the customer with their savings or current account.

To receive a debit card, an individual need only to open an account, either

current or savings with the issuing bank. However, debit card facility does not

extent to cash credit and other loan account.

The banks should issue cards to its customers only having good financial

standing with satisfactory record on accomplishment for at least six months.

A Personal Identification Number (PIN) will be issued to the customers for using a

debit card. Debit card can be used at all outlets that accounts such card for payments

viz., departmental stores, petrol bunks, jewellery shops, restaurants, textile shops,

hospitals, airlines, railways, etc.

Debit card works in the same way as a credit card for purchase transactions

at merchant outlets, the only difference is that the transaction amount is directly

debited to the bank account of the customers.

After finishing the purchases, card holder has to submit the card to the

business outlet. The card holder enters the personal identification number on the

shop's pin pad. The merchant on an electronic data capture terminal for authorization


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swipe the debit card. When the card is swiped through the electronic terminal, it

dials the acquiring bank system, which validates the PIN and finds out from the

issuing bank whether to accept or not the transaction. The terminal wills sure

approval regarding the availability of balance in the account from the card issuing

bank. After a successful authorization or an approval from the bank, the terminal

will print a charge slip. The transaction generated by the point of sale will be

conclusive and binding on the cardholder.

Table 3.6

Growth and Progress of Debit Cards in Indian Banks


Year No. of Cards

% Volume % Amount %

2003-04 - - 377 100 4873 100

2004-05 - - 415 110 5361 110

2005-06 497.63 100 456 120 5897 121

2006-07 794.76 160 601.77 160 8171 167

2007-08 1024 206 883 234 14521 257

2008-09 1374 276 1276 338 18547 380

2009-10 1819 365 1701 451 26418 542


Table 3.6 explains the growth of card based payment system. There were

377 Lakh transactions in the FY 2003-04. The number of transactions increased to

1701 lakh (451%) in the FY 2009-10. As far as the volume is concerned, it raised

to Rs.26418 crore (542 %) in the FY 2009-10 from Rs.4878 crore in the FY 2003-04. In the FY 2005-06, 497 lakh (100%) cards were used and is raised to 1819 lakh


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cards (365%) in the year 2009-10. So, it can be concluded that there is a sharp

growth in the using of debit card system in all the years.

3. Smart Cards

Banks are adding chips to their current magnetic stripe cards to enhance security

and offer new service, called Smart Cards. Smart cards are plastic cards just in the

shape of visiting cards. It looks like any other credit cards. Smart card contains a

small microprocessor or computer chip on the face of the card. Smart Cards

allow thousands of times of information storable on magnetic stripe cards. Smard

card is actually a debit card loaded with a sum of money. It can be used for both

small payments and pre paid telephone card. The aim of the smart card technology

is to replace multiple numbers of cards with one or two smart cards with storable

information. In addition, these cards are highly secure, more reliable and

perform multiple functions. They hold a large amount of personal information,

from medical and health history to personal banking and personal preferences.

Benefits

Smart cards can provide identification, authentication, data storage and

application processing. The benefits of smart cards are directly related to the

volume of information and applications that are programmed for use on a card.

A single contact/contactless smart card can be programmed with multiple banking

credentials, medical entitlement, driver’s license/public transport entitlement,

loyalty programs and club memberships to name just a few. Multi-factor and

proximity authentication can and has been embedded into smart cards to increase the

security of all services on the card. For example, a smart card can be programmed to

only allow a contactless transaction if it is also within range of another device like

a uniquely paired mobile phone. This can significantly increase the security of the

smart card.


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Governments gain a significant enhancement to the provision of publicly

funded services through the increased security offered by smart cards. These

savings are passed onto society through a reduction in the necessary funding or

enhanced public services.

Individuals gain increased security and convenience when using smart

cards designed for interoperability between services. For example, consumers only

need to replace one card if their wallet is lost or stolen. Additionally, the data

storage available on a card could contain medical information that is critical in an

emergency should the card holder allow access to this.

3.7. PHONE BANKING

Phone banking includes mobile banking, tele banking and banking via

landline phone network.


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1. Mobile banking: Mobile banking refers to provision and availment of banking and financial

services with the help of mobile telecommunication devices. The scope of offered

services may include facilities to conduct bank and stock market transactions, to

administer accounts and to access customized information. Thus, mobile banking

is the usage of mobile phone as a platform for banking transactions. The high

penetration of mobile phones in India is the biggest drive for mobile banking in

India. The various modes available to Indian users for mobile banking are:

Short Message Service (SMS) is the simplest form of mobile banking. It is

largely used for information based services. But, the biggest challenge in SMS

based mobile banking is that it is the least secure form of mobile banking.

Interactive Voice Response (IVR): IVR allows a caller to select options from a

voice menu and interact with the phone system. The IVR system would then take

the necessary instructions from the customer by recording the tones of the number

selections that the customer enters on the keypad or through spoken commands,

and creates an instruction that is given to the service provider/bank. The security

in IVR systems is relatively higher than SMS.

Wireless Internet Protocol: (WAP) It is the usage of internet on mobile for

mobile banking applications. It is similar to internet banking. The customer’s

handset needs to be WAP enabled. WAP banking is open to similar threats as

internet banking.


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Rapid expansion in the use of mobile phone as a mode of communication has

created new opportunities for barriers to use their mode for banking transactions.

Many countries have adopted this delivery channel as a means of financial

inclusion as it facilitates smart value payments at a very low cost.

Predominantly, two distinct models are in vogue in countries where mobile

banking has taken of the bank led model and the telecom company led model. The

telecom company led model is preferred in countries which have relatively less

coverage of formal banking facilities (e.g. Kenya). After taking into account

various users involved, India has developed the bank led model.

M-banking is cheaper than ATM banking, and more likely to be popular in

Net banking. A bank source reports the costs of these transactions as Rs.150 at a

branch, Rs.30 at an ATM, Rs.15 with phone banking and Rs.10 for internet and

m-banking1.

Mobile phones as a delivery channel for extending banking services have

off-late been attaining greater significance. The rapid growth in users and wider

coverage of mobile phone networks have made this channel an important platform

for extending banking services to customers. With the rapid growth in the number

of mobile phone subscribers in India (about 261 million as at the end of March

2008 and growing at about 8 million a month), banks have been exploring the

feasibility of using mobile phones as an alternative channel of delivery of banking

services. Some banks have started offering information based services like balance

enquiry, stop payment instruction of cheques, transactions enquiry, location of the

nearest ATM/branch etc. Acceptance of transfer of funds instruction for credit to

beneficiaries of same/or another bank in favor of pre-registered beneficiaries have

also commenced in a few banks. In order to ensure a level playing field and

considering that the technology is relatively new, Reserve Bank has brought out a

set of operating guidelines for adoption by banks.

1 The Economic Times, Nov.11,2009, p.13


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Mobile banking transactions are undertaken by using mobile phones by

bank customers that involve credit/debit to their accounts. It also covers accessing

the bank accounts by customers for non-monetary transactions like balance

enquiry etc.

Regulatory & Supervisory Issues

Only banks which are licensed and supervised in India and have a physical

presence in India will be permitted to offer mobile banking services.

The services shall be restricted only to customers of banks and holders of

debit/credit cards issued as per the Reserve Bank of India guidelines.

Only Indian Rupee based domestic services shall be provided. Use of

mobile banking services for cross border transfers is strictly prohibited.

Banks may also use the services of Business Correspondent appointed in

compliance with RBI guidelines, for extending this facility to their customers.

The guidelines issued by the Reserve Bank on ‘Risks and Controls in

Computers and Telecommunications’ vide circular DBS.CO.ITC.BC. 10/ 31.09.001/

97-98 dated 4th February 1998 will apply mutatis mutandis to mobile banking.

The guidelines issued by Reserve Bank on “Know Your Customer (KYC)”,

“Anti Money Laundering (AML)” and combating the Financing of Terrorism (CFT)

from time to time would be applicable to mobile based banking services also.

Only banks who have implemented core banking solutions would be

permitted to provide mobile banking services.

Banks shall file Suspected Transaction Report (STR) to Financial Intelligence

Unit – India (FID-IND) for mobile banking transactions as in the case of normal

banking transactions.


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Registration of customers for mobile service Banks shall put in place a system of document based registration with

mandatory physical presence of their customers, before commencing mobile

banking service.

On registration of the customer, the full details of the Terms and Conditions

of the service offered shall be communicated to the customer.

Technology and Security Standards Information Security is most critical to the business of mobile banking

services and its underlying operations. Therefore, technology used for mobile

banking must be secure and should ensure confidentiality, integrity, authenticity

and non-repudiability.

The security controls/guidelines mentioned in this document are only

indicative. However, it must be recognised, the technology deployed is fundamental

to safety and soundness of any payment system. Therefore, banks are required to

follow the Security Standards appropriate to the complexity of services offered,

subject to following the minimum standards set out in this document. The guidelines

should be applied in a way that is appropriate to the risk associated with services

provided by the bank and the system which supports these services.

Banks are required to put in place appropriate risk mitigation measures like

transaction limit (per transaction, daily, weekly, monthly), transaction velocity

limit, fraud checks, AML checks etc. depending on the bank’s own risk perception,

unless otherwise mandated by the Reserve Bank.

Authentication Banks providing mobile banking services shall comply with the following

security principles and practices for the authentication of mobile banking transactions:

a) All mobile banking shall be permitted only by validation through a

two factor authentication.


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b) One of the factors of authentication shall be mPIN or any higher standard.

c) Where mPIN is used, end to end encryption of the mPIN shall be

ensured i.e. mPIN shall not be in clear text anywhere in the network.

d) The mPIN shall be stored in a secure environment.

Proper level of encryption and security shall be implemented at all stages of

the transaction processing. The endeavor shall be to ensure end-to-end encryption of

the mobile banking transaction. Adequate safe guards would also be put in place to

guard against the use of mobile banking in money laundering, frauds etc. The

following guidelines with respect to network and system security shall be adhered to:

a) Implement application level encryption over network and transport layer

encryption wherever possible.

b) Establish proper firewalls, intruder detection systems (IDS), data file and

system integrity checking, surveillance and incident response procedures

and containment procedures.

c) Conduct periodic risk management analysis, security vulnerability assessment

of the application and network etc at least once in a year.

d) Maintain proper and full documentation of security practices, guidelines,

methods and procedures used in mobile banking and payment systems and

keep them up dated based on the periodic risk management, analysis and

vulnerability assessment carried out.

e) Implement appropriate physical security measures to protect the system

gateways, network equipments, servers, host computers, and other

hardware/software used from unauthorized access and tampering. The Data

Centre of the Bank and Service Providers should have proper wired and

wireless data network protection mechanisms.


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The dependence of banks on mobile banking service providers may place

knowledge of bank systems and customers in a public domain. Mobile banking

system may also make the banks dependent on small firms (i.e mobile banking

service providers) with high employee turnover. It is therefore imperative that

sensitive customer data, and security and integrity of transactions are protected.

It is necessary that the mobile banking servers at the bank’s end or at the mobile

banking service provider’s end, if any, should be certified by an, accredited

external agency. In addition, banks should conduct regular information security

audits on the mobile banking systems to ensure complete security.

For channels which do not contain the phone number as identity, a separate

login ID and password shall be provided to ensure proper authentication. Internet

banking login IDs and Passwords shall not be allowed to be used for mobile

banking.

Inter-operability

Banks offering mobile banking service must ensure that customers having

mobile phones of any network operator is in a position to avail of the service.

Restriction, if any, to the customers of particular mobile operator(s) is permissible

only during the initial stages of offering the service, up to a maximum period of

six months subject to review.

The long term goal of mobile banking framework in India would be to

enable funds transfer from account in one bank to any other account in the same or

any other bank on a real time basis irrespective of the mobile network a customer

has subscribed to. This would require inter-operability between mobile banking

service providers and banks and development of a host of message formats.

To ensure inter-operability between banks and between their mobile banking

service providers banks shall adopt the message formats like ISO 8583, with

suitable modification to address specific needs.


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Clearing and Settlement for inter-bank funds transfer transactions

To meet the objective of a nation-wide mobile banking framework, facilitating

inter-bank settlement, a robust clearing and settlement infrastructure operating on a

24x7 basis would be necessary. Pending creation of such a national infrastructure,

banks may enter into bilateral or multilateral arrangement for inter-bank settlements,

with express permission from Reserve Bank of India, wherever necessary.

Customer Complaints and Grievance Redressal Mechanism

The customer /consumer protection issues assume a special significance in

view of the fact that the delivery of banking services through mobile phones is

relatively new.

Transaction limit

A transaction limit of Rs. 2500/- shall be imposed on all Mobile Banking

transactions subject to an overall cap of Rs. 5000/- per day, per customer. Banks

may also put in place monthly transaction limit depending on the bank’s own risk

perception of the customer.

Board approval

Approval of the Board of Directors (Local Board in case of foreign banks)

for the product as also the related security policies must be obtained before

launching the scheme.

Approval of Reserve Bank of India

Banks wishing to provide mobile banking services shall seek prior one time

approval of the Reserve Bank of India, by furnishing full details of the proposal.

Customer Protection Issues

Any security procedure adopted by banks for authenticating users needs to

be recognized by law as a substitute for signature. In India, the Information Technology

Act, 2000, provides for a particular technology as a means of authenticating


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electronic record. Any other method used by banks for authentication is a source

of legal risk. Customers must be made aware of the said legal risk prior to sign up.

Banks are required to maintain secrecy and confidentiality of customers'

accounts. In the mobile banking scenario, the risk of banks not meeting the above

obligation is high. Banks may be exposed to enhanced risk of liability to customers

on account of breach of secrecy, denial of service etc., on account of hacking/ other

technological failures. The banks should, therefore, institute adequate risk control

measures to manage such risks.

As in an Internet banking scenario, in the mobile banking scenario too,

there is very limited or no stop-payment privileges for mobile banking transactions

since it becomes impossible for the banks to stop payment in spite of receipt of

stop payment instruction as the transactions are completely instantaneous and are

incapable of being reversed. Hence, banks offering mobile banking should notify

the customers the timeframe and the circumstances in which any stop-payment

instructions could be accepted.

The Consumer Protection Act, 1986 defines the rights of consumers in

India and is applicable to banking services as well. Currently, the rights and

liabilities of customers availing of mobile banking services are being determined

by bilateral agreements between the banks and customers. Taking into account the

risks arising out of unauthorized transfer through hacking, denial of service on

account of technological failure etc. banks providing mobile banking would need

to assess the liabilities arising out of such events and take appropriate counter

measures like insuring themselves against such risks, as in the case with internet

banking.

Bilateral contracts drawn up between the payee and payee’s bank, the

participating banks and service provider should clearly define the rights and

obligations of each party.


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Banks are required to make mandatory disclosures of risks, responsibilities

and liabilities of the customers on their websites and/or through printed material.

The existing mechanism for handling customer complaints / grievances

may be used for mobile banking transactions as well. However, in view of the fact

that the technology is relatively new, banks should set up a help desk and disclose

the details of the help desk and escalation procedure for lodging the complaints, on

their websites. Such details should also be made available to the customer at the

time of sign up.

In cases where the customer files a complaint with the bank disputing a

transaction, it would be the responsibility of the service providing bank, to

expeditiously redress the complaint. Banks may put in place procedures for

addressing such customer grievances. The grievance handling procedure including

the compensation policy should be disclosed.

Customers’ complaints / grievances arising out of mobile banking facility

would be covered under the Banking Ombudsman Scheme, 2006 (as amended up

to May 2007).

The jurisdiction of legal settlement would be within India1.

Mobile banking in India is in a budding stage, with the high penetration of

mobile phones acting as a growth driver. The increasing adoption of mobile web-

enabled devices such as smart phones across the world has created a “fertile

environment” in which mobile banking can grow. The use of mobile technologies

is a win-win proposition for both the banks and the bank’s customers. The mobile

phone is obviously a communication tool but it has enormous potential to aid other

value added services especially financial services. In India, mobile banking is

largely driven by SMS and other nascent data services. In Japan and Korea,

mobile banking has taken the bank into the mobile phone: Customers can use their

1 http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1660


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mobile to pay for transactions at subways, convenience stores and movie tickets.

The ultimate aim is to replace the wallet with the mobile phone. India has a long way

to reach that level of mobile banking; however it is an easier path to treat now as the

security standards and the transaction protocols have been developed and tested1.

Mobile phones as a medium for providing banking services have been

attaining increased importance. Reserve Bank brought out a set of operating

guidelines on mobile banking for banks in October 2008, according to which only

banks which are licensed and supervised in India and have a physical presence in

India are permitted to offer mobile banking after obtaining necessary permission from

Reserve Bank. The guidelines focus on systems for security and inter-bank transfer

arrangements through Reserve Bank's authorized systems. On the technology front

the objective is to enable the development of inter-operable standards so as to

facilitate funds transfer from one account to any other account in the same or any

other bank on a real time basis irrespective of the mobile network a customer has

subscribed to.

2. Telebanking Telebanking is innovative form of electronic banking introduced by banks

through which banking services or products are rendered through telephone to its

customers. Company can access customer’s account through the telephone at any time

or at any place throughout the country with the same telebanking PIN they desire.

Customers can carry on a number of transactions from their own home or

office; in fact from anywhere they have access to a phone and in a very convenient

and comfortable manner.

1 Kamini Shah, Sandip Bhatt and Nirmal Jain, “Awareness and Perceptions of Customers about

Mobile Banking”, The Indian Journal of Commerce, Vol.64, No.1, Jan-Mar 2011, pp. 13-26.


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Telebanking is offered by the banks through a technology known as

Interactive Voice Response Service (IVRS). Besides delivering information

related to the customers account, bank also provide the following information

under telebanking services

Information on deposit interest rates

Information on location of branches and ATM

Receiving of following forms by fax or e-mail:

Debit card application form

Travel currency card application form

Registration form for LIC premium payment through ATM.

BSNL bill payment registration form

Exchange declaration form etc.,

3.8. INTERNET BANKING

Banks have traditionally been in the forefront in making use of technology

to update their products, services and efficiency. They began using electronic and

telecommunication networks for delivering a wide range of value added products

and services for a long time. With the popularity of personal computers, easy and

better access to internet and World Wide Web (WWW) is highly possible. It is

being used increasingly by banks as a channel of receiving instructions and

delivering their products and services to their customers.

Internet banking also called on-line banking is nothing more than traditional

banking services delivered through an electronic communication device viz. the

internet. It demolishes the traditional geographical barriers and thus reaches out to

customers across the world. It is an efficient and cost effective delivery mechanism

for banking service. Through internet banking, banks are in a position to offer

extensive range of products and services of varied content and sophistication.


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Internet banking enables customers to open accounts, pay bills, know

account balances, forward loan applications, calculate interest, view and print

copies of cheques and deposits, transfer funds, stop payments, recording of stop-

payment instructions, reorder Cheque books and statements, receive banking

industry news, send and receive messages to and from the bank through e-mail and

other forms of traditional banking services. Different banks have different levels of

such services offered, starting from level-1 where only information is disseminated

through Internet to level-3 where on line transactions are put through.

Information only systems- Level-I

General purpose information like interest rates, branch locations, ATM

locations, product features , loan and deposit calculations etc., are provided on the

banks website with facilities for downloading various types of application forms.

The communication is normally carried on through e-mail. There is no interaction

between the banks application systems and the customer. No identification or

authentication of customers is done. In this case, the possibility of any hacking or

an unauthorised persons getting access to the protection system of the bank

through the internet will be minimized.


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Electronic information transfer system- Level-II

These systems provide customer-specific information in the form of

account balances, transaction details; statement of accounts etc. The information is

mainly in the 'read only' format. Identification and authentication of the customer

is through a password. The information is drawn from the bank’s application

systems either in batch mode or off-line. In this also, the application system is not

be directly accessed through the internet.

Fully electronic transactional system- Level-III

These systems have transactional capabilities of a bi-directional nature.

The customers for on-line update can forward transactions. They require a high

degree of security and control. In such an environment, web server and the

application systems are linked over secure infrastructure, which comprise the basic

requirements in terms of technology covering computerization, networking and

security; inter-bank payment gateway and legal infrastructure for introduction of

internet banking with a fully electronic transactional system in India.

Types of risks associated with internet banking

Even though internet banking is a highly cost effective channel for delivery

of banking services, it is not free from risks. Apart from reductions in cost of

transactions, internet banking also brought about a new set of risks that too in new

forms. Regulators and supervisors all over the world are aware of different types

of risks in internet banking. An important and distinctive feature of internet banking

is that here technology lays significant part as a source and tool for control of risks.

Because of faster and speedier information technology, there is no finality either in

the types of risks or measures to control them. Very often, they evolve continuously.

Some of the risks in internet banking are the following:


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Operational risk (transactional risk )

Security risk

Reputation risk

Legal risk

Money laundering risk

Cross border risk

Strategic risk

Other risks

1. Credit risk 2. Liquidity risk 3. Interest rate risk 4. Risk of unfair competition

3.9. MICR/OCR CLEARING SYSTEM

The two types of technology being adopted in clearing are the Magnetic Ink

Character Recognition (MICR) and Optic Character Recognition (OCR) technology.

This is also known as Automated Clearing System (ACS). In India, MICR

technology is used in clearing of cheques. Under this system, specific type of paper

is used for printing the cheques. These cheques are processed in a high- speed

machine. The cheques should conform to the required specification as laid down.

MICR cheques have two white bands one at the top and another at the

bottom. In these bands, the details of the Cheque are encoded with special

magnetic ink. These bands should be free from any marking or impression.

Further, the cheques should not be folded in between and either end should be free

from any tabs. Cheque number, centre code and transaction code are usually

printed at the time of printing the Cheque itself. Before presentation of the Cheque

only the amount column is required to be encoded.


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Table 3.7 Growth and Progress in Cheque Clearing through MICR


TOTAL MICR CENTRE TOTAL NON- MICR CENTRE

YEAR NO. % AMOUNT % NO. % AMOUNT %

2001-02 5377 100 1,09,47,391 100 3638 100 16,27,863 100

2003-03 5980 111 1,09,78,762 101 4159 114 24,45,551 150

2003-04 6241 116 91,78,751 84 3987 110 24,17,209 148

2004-05 9414 175 93,56,252 86 2253 62 11,02,642 68

2005-06 10,318 191 94,74,370 87 2549 70 18,54,762 113

2006-07 11,441 213 1,04,35,436 96 2231 61 16,06,989 99

2007-08 12229 227 1,15,28,690 105 2376 65 18,67,375 115

2008-09 11,623 216 1,04,00,308 95 2335 64 20,60,892 127

2009-10 11497 213 85,31,516 78 2305 63 18,78,424 115

Source: Annual Reports of RBI from 2001-02 to 2009-10

Table 2.7 depicts the number of cheques and amount of cheques were

cleared in the MICR centres and Non-MICR centres. The financial year 2001-02 is

taken as base year for analysis and assigned 100%. The number of cheques cleared

in the MICR centres increased from 5377 lakh transactions (100%) in the financial

year 2001-02 to 11,497 lakh transactions (213%) in the financial year 2009-10.

But the amount cleared in the MICR centres was almost constant thought out the

above period. In the Non-MICR centres, the number of cheques cleared were

increased up to financial year 2003-04 and declined there after for two years.

There has been a steady increase in the value of MICR transactions from the years

2006-07 to 2007-08 and started to decline in the rest years.


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The reasons for increasing in number of cheques cleared and decreasing in

the amount of cheques cleared were due to introduction of NEFT and RTGS

methods of electronic payment systems. Customers might have used MICR

cheques for small payments and used NEFT and RTGS systems for higher

payments. So, it can be concluded that customers are shifting from traditional

payment methods to electronic payment methods.

3.10. PRE-PAID INSTRUMENTS

Pre-paid payment instruments are payment instruments where value for use

is stored in advance, such as smart cards, magnetic strip cards, internet accounts,

internet wallets, mobile accounts, paper vouchers etc. Pre-paid payment instruments

enhance convenience as a mode of payment in lieu of cash. Also this facilitates

E-payments for goods and services purchased through internet/ mobile. The maximum

loss on account of fraudulent use is limited to balance available on the card.

3.11. TRUNCATION OF CHEQUE SYSTEM

All instruments like cheques, drafts, dividend warrants, internet warrants

drawn on other banks are presented in clearing to obtain payment. With the

increase in economic activity the volume of cheques handled in the clearing house

has constantly increased over the years.

The system of Cheque truncation i.e. instead of presenting a Cheque

physically to the drawee bank on which it is drawn the presenting bank captures the

image of the Cheque and send it electronically to the clearing house. The clearing

house in tern submits the Cheque image electronically to payee branch. The payee

branch verifies the image and takes decision to pay.


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3.12 SUMMARY

In this chapter, an attempt has been made to study the various e-banking

products and services offered by the Indian banks. Due to competition, banks have

started to introduce the techno-based banking products and services such as

internet banking, phone banking, RTGS, ATM, Card system of payments and

other electronic based banking services. Among them, ATM, RTGS, Card systems

are familiar e-banking products and services which public frequently use for their

banking transactions.

ATM

This is the largest utilized ebanking service by the majority of the bank

account holders in India. As far as on-site ATM is concerned, the nationalised

banks have the maximum of 12655 ATMs as compared to other groups of banks.

In case of off-site ATMs, the SBI groups come first with the maximum of 9836

ATMs as compared to other groups of banks.

NEFT

This is a national wide funds transfer system to facilitate transfer of funds

from any branch to any other bank branch. In terms of volume of transactions,

there has been a sharp growth (with an increased percentage of 8095) over the

years. In terms of value of transactions, there has been a tremendous growth since

inception (2391 %).

RTGS

This is the fastest money transfer system through the banking channel on a

‘Real time’ and on ‘Gross’ basis. The total volume of amount transferred through

the RTGS system had been raised to Rs. 10, 11, 69,930 crore (2488 %) in the year

2009-10. The total number of transactions through RTGS had been increased to

332.53 (7217%) lakh transactions in the last financial year 2009-10. As far as the

customer remittance is concerned, the total number of transactions had been raised


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to 304.40 lakh (44765 %) in the year 2009-10 from 0.68 lakh during the year

2004-05. The value of the amount transferred among the customers through RTGS

system had been increased to 2, 95, 16,777 crore, (11823 %) during the year 2009-10.

ECS

This is a mode of electronic funds transfer from one bank account to another

bank account using the services of a clearing house. The number of credit transactions

had been increased to 981 lakh transactions (483 %) in the year 2009-10. %). ECS

(Dr) transactions had been increased to 1492 lakh transactions (1888 %) in the

financial year 2009-10. In terms of value of ECS Dr&Cr transactions, there has

been a steady increase over the years. Overall, it could be said that there has been

a considerable progress in ECS (credit) and ECS (Debit) both in value of

transactions and Number of transactions.

Credit Cards Credit card is the modern system of payment holder. It has the option to

utilize it in part (or) full depending upon his needs. The credit so availed has to be

paid with in a period and with repayment, the limit gets renewed automatically.

Issuance of cards has been showing a poor growth with a minimal increase of

105% since 2005-06. The percentage of volume of transactions had been increased

to 234 % during the year 2009-10 over the base year 2003-04 (100%). In case of

value of transactions, it raised to 350% in the FY 2009-10 when compared to the

base year 2003-04.

Debit Cards Debit card is a pre paid card with some stored value, which optimizes

conveniences for the customers. A customer possessing a debit card need not carry

cash. The number of transactions increased to 1701 lakh (451%) in the FY 2009-10.

As far as the volume is concerned, it had been raised to Rs.26418 crore (542 %) in

the FY 2009-10 from Rs.4878 crore in the FY 2003-04. Issuance of debit cards

had also been raised to 365 % as compared to the year 2005-06.


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MICR

MICR technology is used in clearing of cheques. Under this system, specific

type of paper is used for printing the cheques. These cheques are processed in a

high- speed machine. The number of cheques cleared in the MICR centres

increased from 5377 lakh transactions (100%) in the financial year 2001-02 to

11,497 lakh transactions (213%) in the financial year 2009-10. There has been a

steady increase in the value of MICR transactions from the years 2006-07 to 2007-08

and started to decline in the rest years. From the foregoing discussions, it could be

concluded that the electronic based banking services and products are yet to be

used to the full extent by the customers.


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